District Court Refuses To Bind Surety To Subcontract Arbitration Clause

more+
less-

[author: Gail Jankowski - Law Clerk]

An engineering company was hired to perform work in connection with construction and renovation of the South African Embassy, and subcontracted for sheet metal work with a third party. The subcontract contained an arbitration provision covering “any controversy or claim of Contractor against Subcontractor or Subcontractor against Contractor.” The third party then negotiated with a surety company for a surety bond, which incorporated the subcontract by reference. After a dispute between the engineering company and its subcontractor arose, the engineering company terminated the subcontract, notified the surety company that it intended to make a claim under the surety bond, and filed a request to join the surety company as a party in arbitration proceedings with its subcontractor. The surety company refused to consent to joinder and both parties moved for summary judgment on the issue of whether they must arbitrate the dispute over the bond. The engineering company argued that because the surety bond incorporated the subcontract by reference, the engineering company had agreed to arbitrate not only claims on the bond but also any issues of arbitrability. Relying on the disjunctive “or” in the language of the arbitration clause, the engineering company argued the subcontract required that “any controversy” involving any parties must be arbitrated, as well as any “claim of Contractor against Subcontractor” or vice versa. The court disagreed, applying a heightened standard of “clear and unmistakable evidence” that the surety company agreed to arbitrate. The court reasoned that although the surety company was bound by the subcontract as a whole, the surety company was not bound by the arbitration clause because the language clearly limited it to claims between the engineering company and its subcontractor. Western Surety Co. v. U.S. Engineering Co., No. 15-cv-327 (USDC D.D.C. Sept. 30, 2016).

 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Carlton Fields | Attorney Advertising

Written by:

more+
less-

Carlton Fields on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
×
Loading...
×
×